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USA: Non-profit employers: the rebuttable presumption of reasonableness may disappear or change

Tuesday, 13 May 2014   (0 Comments)
Posted by: Author: Neal T. Buethe
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Author: Neal T. Buethe (Briggs and Morgan)

Newsflash for non-profit employers: the rebuttable presumption of reasonableness may disappear or change

In a recent presentation to the Georgetown Law Center Tax-Exemption Organization Conference, staff members to the Senate Finance and House Ways and Means Committees reported on some proposals for legislation that would have a legal impact on larger non-profit employers in the realm of senior executive compensation.

Large non-profit employers need to exercise care in determining compensation of senior executives in order to avoid intermediate sanctions. In essence, such employers currently need to use compensation consultants to establish a "rebuttable presumption of reasonableness” to be assured that the IRS will not find such compensation to constitute an excess benefit.

Currently on Capitol Hill, there is a legislation proposal to eliminate reliance on the rebuttable presumption and compensation consultants. The proposal would impose a 10% excise tax on the organization itself (not just disqualified persons and organizational manager) if the executive compensation is deemed excessive under an IRS "facts and circumstances” test. This would be a substantial change in intermediate sanction law and non-profit employer compensation processes.

On an additional note, floating around Capitol Hill is a proposal for a 25% excise tax on exempt organizations for executive compensation over $1,000,000 – which is rare, but out there. It would include defined compensation payments. Lookout senior health care executives, university presidents, and Big 10 coaches!

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